Source: Lisa M. Keefe, MEATINGPLACE, 1/25/12

Fitch Ratings has upgraded its ratings for some of Smithfield Foods’ outstanding debt instruments, and affirmed its ratings for others.

The ratings that have been upgraded include:
• Long-term Issuer Default Rating (IDR) to 'BB-'from 'B+';
• Senior unsecured debt to 'BB-' from 'B/RR5'.
The ratings that have been affirmed include:
• Asset-based Inventory Revolver at 'BB+';
• Secured term loan at 'BB+';
• Secured notes at 'BB+'.

Recovery ratings have been withdrawn due to Smithfield's lower overall probability of default.

Analysis
Fitch noted that its upgrade followed its revision of Smithfield's rating outlook last June, to 'positive’ from 'stable’. The company has reduced its debt considerably (having paid down about $1 billion in debt in the last 18 months or so), and has produced consistently better-than-expected operating performance and credit statistics, the ratings agency said.

On the other hand, the ratings recognize the negative impact that volatile grain and potentially lower pork and live hog prices can have on earnings and operating cash flow. Additionally, Fitch believes Smithfield's lack of diversification across proteins results in higher business risk.

Partially offsetting the negatives, however, is the firm's “meaningful and growing portfolio of branded value added packaged meats products.”

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